New Delhi: Union Minister for Finance and Corporate Affairs Nirmala Sitharaman put forth a comprehensive revision of tax slabs and rates aimed at providing advantages to all taxpayers under the new tax regime, in the Union Budget for the fiscal year 2025-26, today. She also announced the introduction of a new Income Tax Bill which will be “clear and direct in text with close to half of the present law, which will be simple to understand, leading to tax certainty and reduced litigation”.
Presenting the Union Budget 2025-26 in the Parliament today, the Finance Minister stated, “There will be no income tax payable up to income of Rs. 12 lakh (i.e. average income of Rs.1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs.12.75 lakh for salaried taxpayers, due to standard deduction of Rs. 75,000.” Tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them, she added.
The 2025-26 Union Budget unveiled new direct tax slabs and rates as part of a revised income tax system, ensuring that individuals with a total income of up to ₹ 12 Lakh per annum—an average of ₹ 1 Lakh each month—will not incur any income tax, excluding special rate incomes like Capital Gains. Additionally, salaried workers earning up to ₹ 12.75 Lakh annually will enjoy a tax-free status due to a standard deduction of ₹ 75,000.
However, this new tax structure and other direct tax initiatives are expected to result in a revenue loss of approximately ₹ 1 lakh crore for the Government.
Sitharaman proposed an across-the-board change in tax slabs and rates to benefit all tax-payers. Sitharaman said in response to the public’s feedback, the Government was “actively responding” to address their concerns. She emphasized that Democracy, Demography, and Demand are essential foundations for the journey towards a developed India. Acknowledging the middle class as a crucial driver of India’s economic progress, she said the government has made it a point to elevate the ‘Nil tax’ bracket in appreciation of their contributions. According to her, the new tax framework is designed to enhance consumption, savings, and investment by empowering the middle class with greater financial resources.
The proposed direct tax changes aim to reform personal income tax with a particular emphasis on supporting the middle class. This includes rationalizing TDS/TCS, promoting voluntary compliance, reducing the compliance burden, enhancing the ease of doing business, and providing incentives for employment and investment.
The budget has made significant changes to TDS and TCS regulations, notably raising the tax deduction limit on interest earned by senior citizens from ₹ 50,000 to ₹ 1 Lakh. Additionally, the TDS threshold for rental income has been increased from ₹ 2.4 Lakh to ₹ 6 Lakh annually. Other adjustments include raising the TCS collection threshold to ₹ 10 Lakh and maintaining higher TDS deductions for cases without a PAN. Furthermore, the recent decriminalization of delays in TDS payments has now extended to TCS payments as well.
In a move to foster voluntary compliance, the budget has increased the timeframe for taxpayers to file updated returns for any assessment year from the previous two years to four years. Over 90 Lakh taxpayers paid additional tax to update their income. This change has encouraged over 90 lakh taxpayers to pay additional taxes to correct their income records. Additionally, small charitable trusts and institutions will benefit from an extended registration period, now lasting from five to ten years, which helps ease their compliance responsibilities. Taxpayers can also now declare the annual value of two self-occupied properties as NIL without any conditions attached. Sitharaman said the previous budget’s Vivad Se Vishwas Scheme garnered significant interest, with approximately 33,000 taxpayers taking advantage of it to settle their disputes. In addition, to support senior and very senior citizens, withdrawals from National Savings Scheme Accounts made on or after August 29, 2024, will be tax-exempt, with NPS Vatsalya accounts receiving similar benefits.
GST Amendments proposed
The Union Budget 2025-26 also proposes changes in GST laws to ensure trade facilitation. These proposed amendments include:
- Provision for distribution of input tax credit by Input Service Distributor in respect of inter-state supplies on which tax has to be paid on a reverse charge basis, effective April 1, 2025.
- A new clause to provide a definition of Unique Identification Marking for implementation of Track and Trace Mechanism.
- Provision for reversal of corresponding input tax credit required in respect of a credit note, if availed, for reduction of tax liability of the supplier.
- 10% mandatory pre-deposit of penalty amount for appeals before Appellate Authority in cases involving only demand of penalty without any demand for tax.
- Provision for penalties for contraventions of provisions related to the Track and Trace Mechanism.
- A provision in Schedule III of the CGST Act, 2017 stating that the supply of goods warehoused in a Special Economic Zone or in a Free Trade Warehousing Zone to any person before clearance for exports or to the Domestic Tariff Area shall be treated neither as supply of goods nor as supply of services. Also, no refund of tax already paid will be available for such transactions. This will be applicable with effect from 01.7.2017.
- Inclusion of definitions of ‘Local Fund’ and ‘Municipal Fund’ used in the definition of “local authority”.
- Certain conditions and restrictions for filing of returns are to be included.
These changes will be brought into effect from a date to be notified in coordination with States, as per recommendations of the GST council, states the Finance Minister.
To promote ease in conducting business, the Budget has unveiled a scheme designed to ascertain the arm’s length price for international transactions for a duration of three years. This approach is consistent with global best practices. Furthermore, the self-harbour rules are being enhanced to ensure more certainty in international tax matters.
Aiming to boost employment and investment, a presumptive taxation regime is set to be introduced for non-residents providing services to resident companies that are either starting or operating electronics manufacturing facilities. Moreover, the benefits of the existing tonnage tax scheme will be expanded to include inland vessels. In a bid to nurture the start-up ecosystem, the incorporation period has been extended by five years. Additionally, the Budget has pushed back the investment deadline for Sovereign Wealth Funds and Pension Funds by another five years, now set for March 31, 2030.
In an effort to streamline Customs tariffs for industrial goods, the Budget suggests several key changes: (i) the elimination of seven tariffs over and above the seven tariff rates removed in Budget 2023-24. This will leave only eight tariff rates, including the ‘zero’ rate, (ii) the introduction of a suitable cess to ensure the effective duty remains consistent, and (iii) the imposition of no more than one cess or surcharge.
To provide relief for the import of drugs and medicines, the Budget fully exempts 36 lifesaving medications used for treating cancer, rare diseases, and chronic conditions from Basic Customs Duty (BCD). Additionally, 37 medicines, along with 13 new drugs available through Patient Assistance Programs, will also be exempt from Basic Customs Duty (BCD) when provided free of charge to patients.
To strengthen domestic manufacturing and increase value addition, the July 2024 budget exempted BCD on 25 critical minerals that were not sourced locally. The 2025-26 budget has now fully exempted cobalt powder, waste and scrap from lithium-ion batteries, lead, zinc, and 12 other vital minerals. Additionally, to foster domestic textile production, two new types of shuttle-less looms have been added to the list of fully exempt textile machinery. The BCD on knitted fabrics has also been revised, changing from a previous range of 10% to 20% to a new rate of 20% or ₹ 115 per kg, whichever is higher.
To rectify the inverted duty structure and promote “Make in India”, the Basic Customs Duty (BCD) on Interactive Flat Panel Displays (IFPD) has been increased to 20%, whereas the duty on open cells has been decreased to 5%. Moreover, to promote the production of open cells, the BCD on their parts is now exempt from duty.
To ramp up the production of lithium-ion batteries within the country, the government has expanded the list of exempted capital goods to include 35 items for electric vehicle battery manufacturing and 28 for mobile phone battery production. The Union Budget for 2025-26 further extends the exemption on Basic Customs Duty (BCD) for raw materials, components, consumables, and parts used in shipbuilding for another ten years. Additionally, the budget has reduced the BCD on Carrier Grade Ethernet switches from 20% to 10%, bringing it in line with Non-Carrier Grade Ethernet switches.
The Budget for 2025-26 aims to boost export activities by supporting handicraft exports, completely removing the BCD on Wet Blue leather to enhance value addition and job creation. Additionally, it lowers the BCD on Frozen Fish Paste from 30% to 5% and reduces the BCD on fish hydrolysate from 15% to 5%, facilitating the production of fish and shrimp feeds.
Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman said that Democracy, Demography and Demand are key pillars of the Viksit Bharat journey. She said that the middle class gives strength to India’s growth and the Government has periodically hiked the ‘Nil tax’ slab in recognition of their contribution. She said the proposed new tax structure will substantially boost consumption, savings and investment, by putting more money in the hands of the middle class.
– global bihari bureau
